All sticks, no carrots

The inflation that we have been experiencing over the past few months shows no signs of subsiding, and the government is in a quandary. Since politics has been converted – over the past few centuries – into the science of bloodless power grab, it is essential that every decision that the government makes should help the political parties behind it come back to power. It is not surprising, therefore, when one hears that Manmohan Singh wants industries to sacrifice profitability and fulfill their duties towards society. And that his Finance Minister, Chidambaram, and Steel Minister, Paswan are already on the warpath against cartels.

The threats are taking effect. CII head Kamath wants the industry to introspect. The steel industry will suffer and will hold prices at current levels; the cement industry will share a similar fate.

Paswan, on the other hand, is fighting not one but two separate battles. The second one is against high drug prices. The prices of major drugs are already controlled in India. But he wants to make things even more difficult. I can understand taking action against companies that try maintaining drug monopolies by the process of patent ever greening. But price control is a completely different kettle of fish.

All these actions are nothing but a back door nationalization of the mentioned sectors, because the prices are not being decided by the market but by the government, and under coercion. If the companies don’t fall in line, the government will use the law to harass them. As an example, the dreaded Enforcement Directorate has already been let loose on companies that messed up big time on their forex derivatives contracts. Who knows what the government might do if the Congress loses the Karnataka polls this month?

Our communist jokers still believe that speculators and hoarders are behind the inflation. I can see some economics professors red faced at the antics of their former students. Bush’s professors, on the other hand, must have already given up. According to him, the Indian middle class’ improved eating habits are responsible for the worldwide price rise. Yes, I started eating ten times my normal diet a year back. So did 350 million more Indians.

By not allowing the market to function, especially in such hard times, governments are doing a great disservice to people. Short term actions don’t necessarily have short term effects.

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